world markets weekly review

World Markets Weekly Review 12-16/07/2021

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World equity markets were mixed this week, with large-cap US markets advancing and small caps, international, and emerging markets dropping. Market players paid attention to more signs of rising inflation pressures in the U.S. where the Federal Reserve reaffirmed the view that this would prove to be transitory. With central banks having started debating policy shifts investors suggest a more cautious undertone.


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AMERICAS

U.S. equities retreated slightly from the record highs they had set the previous week, yet remain in a steady and mostly uninterrupted uptrend since the beginning of the year. Large-cap US markets eked out a gain, in a week full of mixed economic data. Annual inflation rate in the world’s biggest economy rose 5.4% in June from 5% in May, hitting a fresh high since August of 2008, and well above forecasts of 4.9%. The core index, which strips out food and energy, rose by 4.5%, the highest level since 1991. Skyrocketing used-car prices rose the most since data is available starting in 1953.

In his semiannual testimony to Congress Federal Reserve Chair Jerome Powell acknowledged that the recent spike in inflation was larger than he expected, but repeated his view that inflation is transitory. He also said that the central bank wouldn’t hesitate to lift interest rates to try to control rising prices.

Manufacturing output contracted slightly in June, weekly jobless claims hit a new coronavirus low of 360,000 and retail sales bounced back from May’s fall as shoppers were in a buying mood again.

LATAM
In Chile the S&P IPSA Index, returned -2.2% on Thursday in a holiday-shortened week. The stock market was closed for a holiday on Friday. On Wednesday, the Chilean central bank raised its monetary policy interest rate by 25 bps to 0.75%, aiming to support a weak peso that has touched its lowest level so far this year due to the recent drop in copper prices and broad dollar strength. The decision was unanimous among policymakers.

In Brazil, the economy ministry said GDP was expected to grow 5.3% this year, far more than a previous forecast of 3.5%. The Brazilian economy expanded 1% year-on-year in the first quarter of 2021, after a 1.1% contraction in the previous period and beating market estimates of a 0.8% growth.

ASIA/PACIFIC

Japanese equity markets registered modest gains for the week, as Tokyo was placed under its fourth Covid-19 state of emergency. At its July meeting, the Bank of Japan left its key short-term interest rate unchanged at -0.1% by an 8-1 vote, as widely expected, and voted unanimously to maintain its asset purchase programme. In its Outlook for Economic Activity and Prices report, the central bank slashed its projected rates of the GDP for the current fiscal year (FY) to 3.8% from earlier forecasts of 4% made in April, and upward to 2.7% in FY 2022, from the previous 2.4%.

The Reuters Tankan sentiment index for manufacturers rose to 25 in July from 22 in June, its highest level since November 2018, as the country’s export-driven recovery remained intact thanks to solid global demand. Business confidence was particularly strong among car, chemical, and metal products makers.

In a choppy week, Chinese markets showed relief after data showed that China recorded a 7.9% annual growth rate in this year’s second quarter, in line with expectations, according to the country’s statistics office. Beijing has set a full-year growth target of more than 6.0% after the economy expanded the least in over four decades of 2.3% in 2020.

Upbeat retail sales for June suggested consumer spending in the world’s second largest economy remains resilient, while power consumption was robust.

Effective on July 15, the People’s Bank of China unexpectedly slashed the Required Reserve Ratio (RRR) for banks by 0.5% to 12.0%, which is expected to inject about 1 trillion yuan ($154 billion) into the banking system. Analysts welcomed the central bank’s move which could improve the relative performance of emerging-market stocks. They also see it as a boost for growth.

In Australia, where the two biggest cities live under strict lockdown rules, the market rose 1% managing its best week in six. The benchmark index shook off COVID blues thanks to a record-setting performance by mining giant BHP. The world’s largest-listed miner registered its best-ever close on Friday, advancing 0.7% to to $51.87 as iron ore futures ticked higher and base metals benefitted from upbeat Chinese economic data. Brokerages also expect the $240 billion miner to gain from increased iron ore shipments and higher prices. The state of Victoria was ordered into a five-day lockdown on Thursday joining Sydney. The hit to the economy from the Sydney and Victorian lockdowns is forecast to escalate to $10bn. How can investors see the light at the end of the tunnel ?

EUROPE

European stocks fell on signs of economies slowing and worries that inflation was likely to last. Eurozone’s annual inflation rate was confirmed at 1.9% in June, slowing from a 2-1/2-year high of 2% in May. The European Central Bank expects inflation to increase later in the year but the rise should be temporary. In the UK consumer price inflation grew 2.5% in June—the highest level since August 2018—and up from 2.1% in May. Bank of England Deputy Governor Sir Dave Ramsden and Monetary Policy Committee member Michael Saunders asserted that there could be a case for tightening policy soon because of growing inflationary pressures. More positively, the country remains on course to lift its remaining COVID-19 lockdown controls on Monday.

In Central East Europe stocks gained. In Prague equities hit a 10-year high on Thursday, as Czech  cybersecurity company Avast said it is in “advanced discussions” about a merger with NortonLifeLock,  Avast which went public in London in 2018, now has market value of $7.2 billion. In Romania, local stock indices ended the week mixed in lower turnover.

AFRICA

In South Africa, equities as measured by the FTSE/JSE All Share Index, returned about 0.2%. The country was rocked during the week by the worst violence in post-apartheid South Africa after former President Jacob Zuma was sentenced to 15 months in jail on July 8 for contempt of court.
The protests widened into grievances over longstanding poverty and inequality. In Nigeria bears set the note, as the NGX All-share Index depreciated by 0.12% from 37,994.19 points to close at 37,947.18 points this week with investors losing about N25 billion. The market capitalisation fell from N19.79 trillion in the previous week to N19.77 trillion as of Friday (July 16).


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